Foreclosure Tricks and Treats

Navigating today’s housing market is like trick-or-treating on Halloween. Treats are in large supply, but tricks lurk around every corner.

Homeowners and buyers alike should be careful they aren't tricked into real estate situations where they end up losing time and money, especially in the foreclosure market.

FORECLOSURE TRICKS TO AVOID

Trick #1: Every foreclosure is a bargain.

Don’t get tricked into buying a money pit. A foreclosure property with a low price tag may seem like a bargain, but if you don’t do your research, it could quickly become a money-draining nightmare. Insist on a home inspection and look up tax and lien records to uncover potential problems. The true cost of the home should include any repairs and improvements you need to make.

Trick #2: Buying a foreclosure property is like buying any other property.

Don’t get tricked into thinking that the foreclosure buying process is the same as the traditional process. You shouldn’t work with just any real estate agent. Find one who specializes in distressed properties. Depending on what stage of foreclosure the property is in, you may not deal with the seller or a listing agent at all. You could be dealing with county officials at a courthouse auction or with the bank that owns the property.

Because of the multiple parties and specific laws involved, a foreclosure deal is much more complicated than a traditional one. While it typically takes 30-45 days to close, a foreclosure sale could take three to six months. So if you need to buy a home quickly, keep your options open -- a foreclosure or short sale may not work for you.

Trick #3: Going into foreclosure is better than paying a mortgage you can’t afford.

Don’t get tricked into giving up your home if you’re having trouble making your mortgage payments. Foreclosure has major legal, tax and credit consequences, so exhaust all your other options first.

As soon as you know that you’ll be struggling financially, contact your lender to discuss possibly modifying or refinancing your loan. Don’t be afraid to open letters or answer calls from the bank. Go back and review your mortgage documents. The sooner you work out an action plan, the more likely you’ll be able to keep your house.

FORECLOSURE TREATS TO TAKE ADVANTAGE OF

Treat #1: Homeownership is affordable.

It may take a lot of patience and research, but amazing deals are out there. Gone are the days when foreclosures were merely abandoned, condemned buildings. Today's foreclosures range from the typical eyesore to a multi-million-dollar estate. It's possible to find a well-maintained foreclosure property for as low as 50 percent below market value and, with decent credit, get a mortgage with a low interest rate.

The flood of foreclosures and short sales into the market has pushed home prices so low that buyers who were once priced out are now able to reap the benefits of homeownership.

Treat #2: Banks are motivated to get rid of their inventory.

Banks are not in the business of real estate, so their goal is to get their non-income-producing properties off their books as quickly as possible. The benefit for bargain hunters? Aggressively reduced pricing. The downside? Increased competition for these properties and a longer closing process.

To better position yourself, build relationships with a lender’s REO (real estate owned) department, bank-owned homes department or asset-management department. If you are willing to take the risk, consider making no-hassle offers, like buying the property “as-is” or proposing an all-cash deal.

Treat #3: The right foreclosure can be a good investment.

With falling home prices and low mortgage rates, the right foreclosure can be a profitable investment, whether you rent it out or flip it.

Just as you would for a traditional property, research the neighborhood and comps. Not only should you have a good sense of the home’s market value and your potential expenses, but you should also consider the surrounding area’s economic stability and potential for growth.